Saturday, 3 October 2015

Guide on Income tax of freelancer & Blogger

Any person earning income from any source is liable to pay income tax as per the tax rates prescribed by the govt. While computing the income on which tax is to be paid, the total of all Incomes earned by a Blogger are to be taken into account. You are requested to note that Income Tax is not payable on the Total Revenue earned but is payable on the Total Income earned. Total Revenue is the Gross Amount received and Total Income is the amount earned after Depreciation and Payment of Expenses incurred for the purpose of earning the Revenue.

The difference between Total Revenue and Total Income has been explained with the help of an example below:-
  • Total Revenue/ Total Turnover: Rs. 13,00,000
  • (Less) Total Expenses Incurred for the purpose of earning Revenue: Rs. 2,00,000
  • (Less) Total Depreciation on all Assets: Rs. 1,50,000
  • (=) Gross Total Income: Rs. 9,50,000
  • (Less) Deductions allowed for specified Investments: Rs. 1,00,000
  • (=) Total Taxable Income: Rs. 8,50,000
In the above example, income tax would be levied as per the income tax slabs on the total taxable income (i.e. Rs. 8,50,000) and not on total revenue (i.e. Rs. 13,00,000). TheIncome Tax Slab Rates keep changing are announced by the Govt in every budget.

Expenses allowed to be deducted while computing Income Tax

Deduction on INcome taxAny amount which has been paid for the purpose of earning revenue is allowed to be deducted as an expense. A few examples of the expenses allowed are as follows:-
  • Domain Hosting Expense, Domain Purchase Expense, Blog Designing Expense etc
  • Rent Expense
  • Electricity Expense/ Telephone Expense/ Internet Expense/ Water Expense
  • Salary to Employees
  • Payment to Freelance Consultants
  • Petrol/ Diesel Expenses
  • Any other expense incurred for the purpose of earning Revenue
Here, you are requested to note that only those expenses incurred for the purpose of earning Revenue are allowed to be deducted as an expense. For e.g.: If you invite a client for a meeting in a 5 star hotel, the payment made to the 5 star hotel is allowed to be deducted as an expense as this meeting would help you in increasing your business and would help you earn extra income. It is irrelevant whether you get extra business from this meeting or not, the point to be taken into account is that this expense was incurred for the purpose of gaining extra business.
But, if you go to a 5 Star Hotel for your personal purpose and not for business purpose, it would not be allowed to be deducted as an expense.
For the purpose of claiming these expenses, you are also required to provide proof of such expenses. Therefore, you are required to maintain a file showing bills of all the expenses incurred.
Depreciation on Assets
For the purpose of earning revenue, bloggers also purchase some assets. So for the purpose of earning revenue, if you’ve purchased any assets like mobile/ laptop/ car/ office furniture etc you are also allowed to reduce this form of expense incurred for the computation of total income.
However, the benefit arising from the expense incurred on the above mentioned assets would be arising for more than 1 year as these assets usually have a life span of more than 1 year. As the benefit would be arising for more than 1 year, the expense incurred shall also be attributed to more than 1 year.
In such cases where the expense has been incurred for purchase of any Asset, you are not allowed to claim the whole expense at one go. The total expenditure incurred for purchasing the asset is allocated over the life of the asset and you are allowed to claim this expenditure proportionately over the life of the asset. This can be explained with the help of an example below:-
For e.g.: If you purchase a laptop for Rs. 30,000 and the expected life of the laptop is 3 years, you cannot claim the whole Rs. 30,000 as an expense in one year as the life of the Asset is more than 1 year and this laptop would be giving you benefits for more than 1 year. In this case you would only be allowed to claim Rs. 10,000 (i.e. Rs. 30,000/3)
This method of proportionately claiming an expense based on the life of the Asset is called depreciation of asset. You are required to show the proof of expenditures made on purchase of Assets by showing requisite bills for the same.
Please Note: The Individual cannot himself decide the life of an asset and the Govt has already pre-defined the life of all the Assets.
Deductions allowed for Specified Investments
To promote the habit of savings amongst taxpayers and to channelize the resources in the right direction, the Govt also allows for Deduction for amount invested in specified investments. If a taxpayer makes an Investment in any of the Investment Options as specified by the Govt., he shall be allowed to claim deduction for the same. Income Tax would be levied on the amount so arrived after reducing the Deductions from the Gross Total Income.
Deductions for Investments made in specified Instruments are allowed and the most popular forms of Investment for claiming Deductions are Mutual Funds, PPF Accounts, Life Insurance Premium, Health Insurance Premium etc. The whole lists of Investments which are allowed to be claimed as a Deduction are given here.
Exemption from Payment of Income Tax
If the Total Taxable Income after deducting all expenses, depreciation & deductions allowed is less than the minimum income which is chargeable to tax, the individual is not mandatorily  required to file his income tax return.
As per the current Income Tax Slabs, no tax is payable if the Total Taxable Income of an Individual is less than Rs. 2,00,000. Therefore after deducting everything stated above, if the Total Taxable Income is less than Rs. 2,00,000 he is not mandatorily required to file his Income Tax Return and it is optional for him to file his Income Tax Return.
In cases wherein it is optional for the taxpayer to file his income tax return and he still files his Income Tax Return, in such cases he will file an Income Tax Return stating that the Tax payable by him is Nil.
PAN Card for filing Income Tax Return and Payment of Taxes
In India, there are many people by the same name. Let’s take the case of Harsh Agrawal. There are many people in India by the name of Harsh Agrawal. So if Harsh Agrawal goes and pays his Income Tax, how would the govt come to know which Harsh Agrawal has paid the tax?
So as to avoid this confusion, the govt issues a PAN Card to every taxpayer. PAN Card is a unique no allotted to every taxpayer. Only 1 PAN Card No is issued per person and for each Harsh Agrawal in this country, the PAN Card No would be different and it is through the PAN Card No that the govt would come to know which Harsh Agarwal has paid his Income Tax.
Every taxpayer has to apply for a PAN card no and this application can be made online as well. This is a one-time process and the PAN card no allotted to you would stay the same throughout your lifetime. Applying for pan card is a fairly easy process and application for the same can be made online as well as offline. The Charges for applying for a PAN card are very nominal and are Rs. 96 only.
The request for applying for a PAN Card is required to be made in Form 49A and online request for PAN Card No can be made through the TIN Portal on the NSDL Website. You are requested to note here that without PAN Card No. you cannot pay Income Tax.
As against popular belief, I would here also like to clarify that it’s not necessary for you to be 18 years of age to be applying for a PAN Card. You can apply for a PAN Card even before you are 18 years of age and this income would be counted as your income and not your parents income as you are earning this income out of your own skill.
Due Date for Payment of Income Tax
Every taxpayer is required to make payment of income tax during the year itself in which the income is earned. He is required to make the payment in instalments during the Year if the total tax payable during the year is more than Rs. 10,000.
Such payment of Income Tax during the year is called Advance Tax and due dates have been specified for the payment of advance tax during the year. The Payment of advance tax can be made online by submitting the requisite Challan Form on the NSDL Website.
The Due Dates for Payment of Advance Tax for all taxpayers (except Companies) is as follows:-
Due Date
Amount Payable
On or before 15th Sept
Not less than 30% of the Total Tax Liability
On or before 15th Dec
Not less than 60% of the Total Tax Liability
On or before 15th March
100% of the Total Tax Liability
Filing of Income Tax Return
At the end of the year, every taxpayer is required to file a statement of his taxes. This statement of taxes is called the Income Tax Return and this Statement should indicate:-
  1. The revenues earned and the sources from where they are earned
  2. The expenditures incurred
  3. The depreciation claimed on assets
  4. The investments made which have been claimed as a Deduction
  5. The Total Taxes paid incl. the Advance Tax paid or the TDS deducted (if any)
Delay in payment of income tax and filing of Income Tax Return would enforce levy of Interest and Penalty for the delay. In case a person has by mistake paid excess tax, he can also claim Refund of the excess tax paid.
The above article is only an overview of the computation of income tax on earnings from Blogging and it has been simplified so as to make it easier to understand for non-finance people. You are requested to refer to the Income Tax Act for exact interpretations.
In case of any query, feel free to ask them in the comments section below and I would be happy to help. If you find this guide useful, do share it on Facebook and Google plu

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